Natural Gas Utilities Attractive Targets for Electric Takeover

NEW YORK -- U.S. natural gas utilities, their stocks depressed by
low gas prices and poor sales, are prime candidates for takeover by
electric utilities, analysts say.

East Coast natural gas utilities such as Yankee Energy System,
Colonial Gas and Washington Gas Light are especially attractive
targets because they are located in lucrative electricity markets and
lack the resources to compete against new rivals as their local
monopolies are ended over the next few years, analysts say.

Deregulation has electric utilities selling off billions of
dollars in power plants, giving them the resources to make
acquisitions at a time when gas companies are looking like bargains.

"Electric utilities are generating a lot of cash and are looking
for places to invest. All of these gas stocks are cheap," said
Michael Heim, an analyst with A.G. Edwards.

Gas utilities shares fell because mild winter weather cut into
sales of heating fuel this year, and natural gas prices have been low
because of ample supplies.

Regulators are prodding utilities to sell power plants as part of
the move to bring competition to the electric industry. Power
companies are selling non-nuclear plants for much more than book
value, and are expected to use the proceeds to buy into businesses
that can deliver products using pipes or wires.

In addition to natural gas companies, utilities have invested
billions of dollars in home security, Internet and phone businesses.

The gas utility industry, particularly in the Northeast, is more
fragmented than the electric utility industry, leaving plenty of room
for consolidation, analysts said. Massachusetts, for example, has
nine gas utilities based in the state and just four electric
utilities.

"We're all pretty small, and we could be a good fit with an
electric company," said Tom Dorsey, the director of investor
relations with Yankee Energy System, a Meridian, Conn.-based company
whose stock has fallen 12 percent this year as mild weather has cut
sales of heating fuels such as natural gas.

Colonial Gas, based in Lowell, Mass., is seeking regulators'
approval to create a holding company, making it easier to buy a rival
or be bought. …

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